Behavioural Characteristics and Financial Distress

Figure 1: Quiz Material 2

Value of £10,000 invested in different
funds

—*—Fund 1

-■—Fund 2

ɪ Fund 3

Two additional questions were also asked, which assessed respondents knowledge of the
real value of money and their ability to calculate percentages:

(5) If the inflation rate is 5% and the interest rate you get on your savings is
3%, will your savings have at least as much buying power in a years time?

(6) Suppose you saw the same television on sale at a discount in two different
shops. The original purchase price of the television was £250. One shop is
offering a discount of £30 off the original price, the other is offering a discount
of 10% off the original price. Which is the better deal - £30 off or 10% off?

Table 4 summarizes how the UK respondents performed on these questions. At first
glance, the sample appear to score well on the financial literacy questions, with over 90
per cent getting the first question about the closing balance on the bank account correct.
However, just over 70 per cent of the sample was able to answer either question on the
graph correctly. More worrying still is the fact that only 46 per cent of the UK sample is
able to answer all the questions correctly. I create four dummy variables reflecting how well
respondents performed on the financial literacy questions: “Literate: 3 and less” which is
equal to one if a respondent answered three or less questions correctly, and zero for all other

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